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International Journal of Business and Management; Vol. 13, No. 5; 2018
ISSN 1833-3850 E-ISSN 1833-8119
Published by Canadian Center of Science and Education
Super Responsive Supply Chain: The Case of Spanish Fast Fashion
Retailer Inditex-Zara
Md Afzalul Aftab1, Qin Yuanjian1, Nadia Kabir2 & Zapan Barua1,3
1
School of Management, Wuhan University of Technology, Wuhan, P. R. China
2
Department of Pharmacy, University of Asia Pacific, Dhaka, Bangladesh.
3
Department of Marketing, University of Chittagong, Chittagong-4331, Bangladesh.
Correspondence: Zapan Barua, Department of Marketing, University of Chittagong, Chittagong-4331,
Bangladesh; School of Management, Wuhan University of Technology, Wuhan, China. E-mail: zapan@cu.ac.bd
Received: November 20, 2017 Accepted: March 16, 2018 Online Published: April 22, 2018
doi:10.5539/ijbm.v13n5p212 URL: https://doi.org/10.5539/ijbm.v13n5p212
Abstract
The successful implementation of an integrated supply chain strategy enhances total control over the operations
and thus enhances speed and flexibility. The objective of this study is two-fold: first to identify the constituents
that mold the fast fashion retailing business model, and second to discuss how global leader of fast fashion
retailing Inditex-Zara’s product offering is strongly supported by integration of various supply chain operations.
The findings suggest that vertical integration through ownership of various operational stages including product
design and development, production operation, logistics and distribution channel; appropriate sourcing strategy
to meet product needs; application of process/product modularity practices in product design, material
procurement and manufacturing to ensure manufacturing flexibility; flexible logistics capability; and all of these
seamlessly integrated and coordinated by a centralized IT infrastructure can significantly raise overall supply
chain flexibility and responsiveness. Inditex-Zara’s super-responsive supply chain reduces ‘bullwhip effect’,
order-to-delivery lead time to stores, ensures lean inventory and high level of responsiveness to adapt and deliver
products to stores with latest fashion trends and customer feedbacks at a rapid speed. Thus Inditex-Zara is able to
successfully counter the negative effects of short product life cycles, high product variety, demand uncertainty
and thus able to closely match product supply to the stores with market demand. This contributes to lower
inventory backlogs; avoid mark-down losses and/or inventory stock out.
Keywords: fast fashion retailing, flexibility, modularity, responsiveness, sourcing strategy, supply chain, vertical
integration, Inditex-Zara
1. Introduction
Traditional fashion buying in the clothing industry is directed by a fixed calendar of trade fairs, fashion shows,
fabric events etc., organized around a 2-season approach to product ranges e.g. Spring–Summer and Fall–Winter.
Previous sales data is the basis for the planning of product ranges i.e. forecast driven, starting as long as one year
in advance of the selling season (Birtwistle, Siddiqui, & Fiorito, 2003). The traditional product
development/design cycle is long (several months to over a year) and manufacturing process is burdened with
long lead times. Retailers following traditional fashion buying have lower product variety but are able to take
advantage of scale economies in material procurement and product manufacturing (Venkatesh & Swaminathan,
2004). However fashion companies have been forced to abandon the planned seasonal product and embrace
creating smaller collections more frequently due to diversity in consumer lifestyle and consequent demands for
newness and uniqueness. This suggests that products’ life cycles have shortened, product varieties have
significantly increased and forecast accuracy for demand has fallen to lower levels (Christopher, Lowson, &
Peck, 2004). It can be argued that firms that keep following the traditional fashion buying and release planned
seasonal product will accrue significant market mediation costs and therefore will put an adverse impact on their
profit margins. For instance with lower forecast accuracy, the retailer may raise the inventory level for all types
of finished goods to meet required customer service level or the inventory held may be below the actual demand.
This may either turn out into higher inventory holding cost or larger product end-of-life write-offs due to high
risk of obsolescence or into lost sales opportunities due to under stock. McCutcheon, Raturi, & Meredith, (1994)
through a case study found that an organization may lose market share to competitor if the organization is
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incapable to satisfy the demand for product variety in a cost-effective manner while its competitors can. The
Spanish fast fashion retailer Inditex-Zara broke the 2-season paradigm i.e. planned seasonal product and started
to create smaller collections more frequently resulting in as many as 20 “seasons” per year (Christopher et al.,
2004). This has been facilitated by developing and establishing a super-responsive supply chain known as
‘Rapid-Fire Fulfillment’ with the ability to compress product design-production-delivery cycle lead time within
15 days (Ferdows, Lewis, & Machuca, 2004). Zara is able to replenish products rapidly driven by customer
demand and also offers frequent assortment rotation of products in stores. The purpose of this paper is to
document and map out a comprehensive view of Inditex-Zara’s unique operating model and many of its best
practices in supply chain operations covering processes including development process of new product design,
tightly integrated information system that facilitates data feedback from retail stores to each of their business
units, order/offer process, postponement at the material procurement and processing stage, internal
manufacturing and outsourcing decisions, distribution and retailing (i.e. brick and mortar stores and on-line
stores). Mapping out the operations process was deemed necessary to explain how these adopted key practices
enabled Inditex-Zara’s successful quick-response supply, production, and retail network to attain ‘world-class'
supply chain management. We try to explain how Zara’s integrated approach to supply chain management
optimizes the entire chain instead of focusing on singular parts. Zara’s holistic approach has significantly
enhanced its competitiveness to respond to the fast changing nature of fashion apparel industry and fulfill
customer satisfaction through rapid responsiveness while also satisfying supply chain performance objectives.
The unit of analysis in this paper is Inditex-Zara, pioneer and global leader of fast fashion retailing also
categorized as branded manufacturer in the buyer driven clothing value chain (Gereffi & Frederick, 2010). The
findings may be insightful to executives of manufacturer-retailer firms; case study in business academics; and for
developing research tools (i.e. survey questionnaire) for performing further research. The paper has considerable
practical significance in that, the comprehensively mapped out view of the supply chain operations can be
replicated by others to gain competence in their operations. The paper is organized as follows: section 2
discusses the adopted research methodology. Section 3 discusses Inditex-Zara’s introduction, its fast fashion
product offering strategy, rapid responsiveness and resultant competitive advantage. Inditex-Zara’s offer/order
process of merchandise for delivery to retail stores is discussed in Section 4. Section 5 discusses about
internalized design phase and design development process for the total product line. Postponement application in
fabric procurement phase and production operation decisions (i.e. internal manufacturing and outsourcing) are
discussed in sections 6 and 7. Sections 8 and 9 discuss Inditex-Zara’s distribution and retail operations. Section
10 discuses a framework illustrating Inditex-Zara’s integrated operations and product/information flow across
the value chain and finally conclusion is discussed in section 11.
2. Research Methodology
The research problem addressed in this paper can be answered in the real-world managerial context more
effectively and as such qualitative research methodology has been adopted (Mintzberg, 1979). Case study
research approach, a subcategory of qualitative research method is particularly well suited to little known,
under-researched and relatively new phenomenon where no previous theory exists or research areas where
existing theory seems insufficient to explain the phenomenon (Eisenhardt, 1989; R. K. Yin, 2009). Real-case
phenomena captures the reality of a given situation in substantial detail in order to have a deeper understanding
of the phenomena and gain ‘how’ and ‘why 'insights (Yin, 2003). Problem-solving, processes, and organizational
functions may all be studied utilizing case research approach. This study adopted single-case design with single
unit (R. K. Yin, 2004). According to Yin (2004), the case chosen for single case study should be such that it is a
representative one and allows capturing and describing the characteristics of other firms operating in the same
industry. An in-depth single case analysis of Inditex-Zara a Spanish fast fashion retailer has been done to map
out the adopted supply chain process that enable it with capabilities such as simultaneously maintaining
unprecedented lead-times, high fashion content, and low price and thus become global leader in the fast fashion
retailing business.The main data sources used to run this in-depth single case analysis of Inditex-Zara were
review of various published case studies, articles and thesis; blogs and online news articles; company annual
reports (2014-2017) and company website.
3. Inditex-Zara’s Fast Fashion Product Offering
Zara the pioneer and global leader in fast-fashion retailing were founded by Ignacio Amancio Ortega in Galicia,
Spain in year 1975 (Ferdows et al., 2004). Zara is the flagship business unit of the 8 total chains controlled by
the holding company called Inditex. Inditex (acronym for Industria de DisenoTextil, S.A.) is a Spanish
multinational clothing company headquartered in Arteixo, Galicia, Spain and in addition to Zara also owns the
chains namely Zara Home, Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius and Uterqüe. During the
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first half of year 2017, Inditex had 7,405 stores, while its online platform was operating in 45 countries covering
a total of 94 markets (Inditex Annual Report, July, 2017). Inditex delivers about 50,000 distinct new items per
year in thousands of stores worldwide compared with 2,000–4,000 items in stores for its key competitors
(Inditex Annual Report, 2017). During year end of 2016, Inditex’s net sales reached 23.311billion Euros (Inditex
Annual Report, 2016) and stock market capitalization valued at 95.167 billion euros. The fast fashion retailer
Zara that constitutes over 66% of Inditex’s business has a global reach in total of 94 markets encompassing
2,236 physical stores during the first half of year 2017 (Inditex Annual Report, July, 2017), while its
e-commerce stores operated in 45 nations (Inditex Annual Report, 2017). During year end of 2016, Zara’s net
sales reached 15.394 billion Euros (Inditex Annual Report, 2016).
Zara targets a general industry-wide mass market rather than a luxurious segment in the industry. Zara’s “fast
fashion” puts emphasis on providing products that contains the latest and most trendy fashionable design
concepts manufactured in distinctive types of styles, materials, colors, and silhouettes with reasonable physical
quality rapidly and at very attractive prices. Such products are categorized as fashion products (Doeringer &
Crean, 2006). New styles can emerge all of a sudden (based for example, on what a celebrity put on during a
televised television program), its demand surge in popularity and then quickly fade away before the end of a
particular season which apparently makes “fashion misses” a common phenomenon. This makes demand for
fashion apparel product to be highly unpredictable and thus suggesting lower forecast accuracy (Abernathy,
Volpe, & Weil, 2006). Additionally, since fashion product category has a rapid pace of changing styles, it results
in short product life cycle of 1 month or less (Doeringer & Crean, 2005). High demand unpredictability and short
lifecycle makes fashion category apparel products extremely time sensitive but not so price sensitive (Fisher,
1997). Zara compares the fashion apparel business to selling fish. When it’s fresh, it sells quickly and at a high
price; the older it becomes, the harder it is to sell and often requires discounting (The Economist, 2012). The
retail giant Zara capitalizes on this problem by rapid responsiveness to the emerging new styles. Zara can bring a
new product from concept-design-production-store shelves in as little as 3 weeks compared with industry
standard for design-to-retail cycle for luxury brands of 5-6 months (Inditex Annual Report, 2017). Zara
introduces new products in huge variety or replenish existing successful products belonging to the high fashion
category in small quantities in each twice-weekly shipment. Products are not mass produced in terms of same
color and style but are differentiated to the extent that each customer feels of wearing a one of a kind style.
Products sold across the world is not confined to a specific region’s taste rather is diverse by being inclusive of
global trend. About 3/4th of the merchandise on display is changed every 3-4 weeks (Ghemawat & Nueno, 2006).
Thus Zara is able to offer customers with exclusivity in their rapidly changing fresh assortments of product lines.
Through consistent introduction of new fashionable items, Zara has developed brand image for being cutting
edge, trendy, and highly fashionable retailer (Abernathy et al., 2006). McAfee, Sjoman, & Dessain, (2007) noted
that Zara attires are not produced to be “classics” (i.e. attires that would always be in trend) but rather to have
reasonably shorter life cycle, both within retail store product offerings and inside clientele’s wardrobes. Zara
clothes are not designed and manufactured to be long lasting as they are made with less expensive fabric and are
characterized as “clothes to be worn 10 times”. Zara also offers basic category apparel products that constitute 40%
of its product assortment vs. H&M’s 70% (Caro & Martínez-de-Albéniz, 2015). The simple basic style apparel
products contain low fashion content, come in few classic colors, and have product life cycle of 2-3 years with
little seasonal variation that sell all year round e.g. men's and children's merchandise such as sweater, dress shirts.
Basic style apparel products have a stable demand pattern and can be forecasted with higher accuracy (Doeringer
& Crean, 2006; Ghemawat & Nueno, 2006; Warburton & Stratton, 2002). Ferdows et al. (2004) noted that Zara's
product lines are segmented into women’s, men’s, and children’s, with additional segmentation of the women’s
line into three sets of offerings that varies in terms of their prices, fashion content, and age targets. This is
because women collection line is more fashionable, moves at a very high speed and constitutes Zara’s core
business. As such women collection lines are positioned in the most strategic places and often at the front part of
the stores. In addition to the three product families belonging to apparel items, Zara also sell footwear, lingerie,
accessories, cosmetics, and fragrances in its retail stores (Chu, 2005).
Mazaira, González, & Avendaño, (2003) found that Zara avoids the industry standard cost-plus margin pricing
policy and instead first identifies the prices customers are willing to pay and also the price of similar products
offered in competitors’ stores. Then, the company establishes target prices for each of its specific items, often 15%
below those of competitors (Crofton & Dopico, 2007). The information is provided to the company purchasing
department, who are in charge of margin control. Purchasing department then controls the cost of production (i.e.
in terms of costs for material and supplier) so that desired price and margin can be achieved (Mazaira et al.,
2003). Merchandises are sent to stores in small shipments, display shelves are sparsely stocked, individual items
to be sold are on display for no longer than a month and assortment of products in stores are frequently rotated
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all of which help to create an ambience of scarcity and opportunity (Crofton & Dopico, 2007). Zara has
estimated that, an average Zara customer visits the chain 17 times a year, compared with an average of 3-4 times
a year for competing chains (Ferdows et al., 2004). Since Zara can offer a huge variety of the latest designs
rapidly in affordable prices and supplies to stores in limited quantities it can successfully counter “strategic
consumer behavior” where customers delay purchasing of products until products are marked down and
encourage consumers to buy the products at full price. Thus Zara has 12 inventory turns per year compared to
3-4 per year for competitors and is able to sell 85 percent of its entire product range at full price compared to the
industry average of selling only 60-70 percent of items at full price (Crofton & Dopico, 2007).
Zara’s product mark down used to be a problem since country managers had a tendency to focus on liquidating
stock rather than maximizing revenues, which arose from the pressure to open up space for the incoming season.
The I.T department of Zara developed a model to optimize mark-down during clearance sales in 2008, which
provided suggestions on when to markdown aggressively and when it was better to postpone product markdown.
The model resulted in significant increase in revenues. Annually Zara has 10% of inventory that remains unsold
compared to industry averages of 17-20%. Items that remain unsold after 2 weeks of their introduction are
returned to the distribution center and are disposed of through a separate chain of stores (Ghemawat & Nueno,
2006). Inditex’s high level of flexibility in its operations, allows performing manufacturing of its high margin
fashion category apparel products based on the more accurate short-term (2-6 week) demand forecasts instead of
relying on inaccurate long-range sales forecasts (6-12 months). This contributes to lower inventory costs and
mark-down losses and yet continues to ‘saturate’ stores with new products (Tokatli, 2008). Zara commits
production of only 15-39% of a season’s line 6 months in advance of a season’s line (versus the 80-90 % done by
competitors) and introduces these new design collections at the beginning of the fall/winter and spring/summer
fashion periods. Zara designs and produces 50-60% of its line versus the industry average ranging from
practically zero to a maximum of 20% during the start and middle of the season, changing the colors, cuts, and
fabrics of existing designs in response to customer feedbacks as well as adding completely new ones making
introduction of new items a continued process throughout the year (Amed & Abnett, 2015; McAfee et al., 2007).
Inditex- Zara has developed responsiveness and competitive advantage in the market through coordination and
tight integration of various operations related to design creation process, material sourcing, offer/order process,
production, distribution process and sales through brick-and-mortar retail stores or online stores and make them
work seamlessly. Most of these processes are vertically integrated i.e. owned by Zara thus giving complete
control over its product (Chu, 2005). In the following sections we discuss each of these operations in details and
also develop a model illustrating the product flow and information flow in the integrated processes.
4. Offer and Order Process of Merchandise for Retail Stores
Mcafee, Dessain, and Sjoman (2007) discussed how ‘offer’ and ‘order’ process for merchandise are prepared
disseminated and executed. At the beginning of each season, a commercial within the design team communicates
order information to manufacturing plants in the form of a first-production request and sends the produced new
collections to the stores. Each store is sent about 25,000 units within a 2-week period. But once new products
arrive at the stores, it is responsibility of the section managers to order replenishments. All Zara stores have
technologically similar handheld computers known as personal digital assistants (PDAs) which are used for
transmitting order and offer information consisting of large amount of minute stock-keeping unit (SKU) level
data to and from headquarters to all the retail stores around the world and also for functions such as managing
product returns to the distribution centers. Applications developed by Zara’s I.T department are used to prepare
the distribution of “offer” from head quarter to stores worldwide and receipt and aggregation of “order” from
stores to headquarter over the Internet. The use of PDA instead of fax machines in performing the critical
ordering process, twice a week saves Zara both cost and delay. The ultimate result is reduced lead-time in the
ordering process. Twice a week approximately 24 hours before each order deadline, each store manager receives
a morning “offer” in his/her handheld computers known as personal digital assistants (PDA). The offer lists the
products that the logistics center has in stock with descriptions, photos of the newly available items, and a
history of how many of that product the store has already received and sold. Offers are developed by a team of
commercials and are based on availability of garments, patterns of regional sales, predictions about what would
sell well in each location and other important factors making each region’s offer to be unique. To expedite and
simplify ordering, the store manager divides the offer into segments and “beames” each segment to the handheld
devices of the section managers for product lines of Men, Women, and Children using infrared technology.
Section managers use these data along with their own judgement of customer demand and their knowledge of
store inventory to decide how many units of each item to order. The IT system on any in-store computer does not
provide store-inventory data and so section managers can know store’s inventory stock levels by spending most
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of their time on the selling floor. Each section manager using their handheld device fills in their part of the offer
as they explore through the store, and send their part back to the store manager. Store managers after evaluation
sends the completed form, now called “the order,” back to head quarter at the pre-designated day and cut-off
time for order placement, twice a week. Zara places very strict restrictions on the deadline for order placement. If
a store slips its deadline, it has to wait until next time (Ferdows, Lewis, & Machuca, 2003) and head quarter in
La Coruña calculates a replenishment-only order for them based on what they had sold since the previous order
and sends inventories accordingly (McAfee et al., 2007).
Another application aggregates “the order” sent from each store at the SKU level and compares to available total
supply of inventory for each SKU in the distribution center. In cases supply matched demand for a particular
SKU, the application simply allocates the inventory according to specific store’s order requirement. In cases
when supply and demand are imbalanced, the application highlights the situation and executes commercials’
decisions about how to allocate products. These commercials at headquarter also known as “country manager”
are in charge of order fulfillment by controlling the flow of product to stores. Their responsibility is to match the
supply of finished clothes coming from factories worldwide into the distribution center with the stores’ demand
for these pieces. They work with two categories of information: the aggregated orders from all stores which are
finalized soon after the order deadline has passed and the total supply of inventory in the distribution center at
the same point in time. Both these types of data are at the SKU level. They are assisted by computer algorithms,
developed in partnership with Massachusetts Institute of Technology, which help to get the right mix of sizes for
stores. However, the commercials still have the independence to adjust everything manually, depending on local
feedback and market knowledge. These commercials or country managers gather information at multiple levels
of aggregation. In addition to analyzing sales data, they also talk to regional managers to get an aggregated view
of regional trends and with store managers to get crucial information on what their customers like, dislike, and
request, as well as feedback on how new items are selling. Most country managers have worked in stores, often
as managers, so they know the right questions and understand the answers when speaking to regional managers
(Sull & Turconi, 2008). In times when demand for an SKU exceeds supply the commercials prioritize the stores
with supplying the available inventory that had been most successful at selling the item. To decide upon the
future production requirements for each SKU, these commercials collaborate with the product managers.
Production could be immediately increased by placing replenishment requests if demand exceeded supply. And
production could be stopped by decreasing replenishment requests and eventually halt forwarding fresh factory
orders altogether in cases supply exceeded demand. Finally, commercials also ship new items in limited quantity
to certain key stores in targeted geographies for which they want to assess demand. If consumer reactions are
unambiguously positive, the items are produced on a larger scale and stocked up in the two weeks. And when the
items turn out to be unpopular, the limited initial inventory minimizes the resulting markdowns (Ghemawat &
Nueno, 2006; Sull & Turconi, 2008). When commercials find that garments selling slowly in one area are
popular in another area, they can trigger store-to-store product transfers (McAfee et al., 2007).
Caro & Martínez-de-Albéniz, (2015) noted that previously, there were two problems in Zara’s inventory
allocation process. First since the store manager’s remuneration was dependent to total sales in the stores, there
was an inclination for store associates to order quantities exceeding their true weekly requirements, specifically
when they assumed that the inventory level of a popular selling item could be in limited supply at the distribution
center. Secondly, Zara put merchandise on display only when the complete set of sizes for a merchandize was
available. Otherwise the merchandise would be put out of display area. Therefore ensuring that a complete set of
products were available in the store at every point in time was a complicated rationing problem that needed to be
performed by the inventory allocation operation team for thousands of products in just a few hours. In 2005,
Zara developed and adopted a new allocation process mechanism based on formal forecasting and optimization
models. Two categories of information including past sales data and order information of store managers are fed
into the forecasting and optimization model that could maximize sales in the stores while incorporating inventory
availability and the display policy regarding sizes. The utilization of analytical models, also known as Operations
Research, focused on finding the global optimum for the chain rather than many local optima for individual
stores and helped to create a scalable process with consistent allocation rules. The new mechanism was able to
allot inventory where it was most required and was able to ship specific sizes only where it was likely to
generate sales. Overall, sales increased by approximately 3-4% (Caro & Martínez-de-Albéniz, 2015).
5. Zara’s Internalized Design Phase
Ferdows et al., 2004 posited that Zara’s single, centralized design and production center is linked to the Inditex
headquarters in La Coruna with an area of 1.7m sq ft. Zara’s design center consist of 3 spacious halls each
dedicated to clothing lines for women, men, and children. Each clothing line is operationally distinct because
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separate design, sales, procurement and production-planning staffs are dedicated to each. Though it’s more costly
to operate three different channels, the information flow for each channel is swift, direct, and free from
inaccuracy thus profoundly increasing the responsiveness of the overall supply chain. At Inditex, the design
teams consist of 700 highly talented designers who translate the desires of customers into the fashion (Inditex
Annual Report, 2017). In addition to raw creativity, these designers also need attention to detail, analysis, instinct,
insight and simple human empathy.
5.1 Designers Are Co-Located
Omera, Christopher, & Creazza, (2012) suggested that when there is low coordination between designer team
and other members of supply chain like buying team, merchandizing team, pattern-makers and suppliers it often
causes delay in range planning for new collections thus increasing product development lead time and choking
responsiveness. This situation can be solved by co-locating them so as to enable cross functionality and thus high
coordination. As such they can have increased product knowledge and can streamline the product design
decision making process. The team can use standard frameworks and process mapping which can quickly be
communicated across the supply chain. Both the velocity and quality of design process is enhanced as design
process is managed in coordination with other functions in the supply chain. Sull & Turconi, (2008) discussed
how at Inditex, its design team, commercial team, market specialists, procurement teams and production
planners work in tightly synchronized teams at headquarters.
5.2 Design Development Process for New Products
It is absolutely necessary to foresee fashion trends and fickle consumer preferences in the rapidly changing
fashion industry. McAfee et al., (2007) noted how sales associates and section managers at the stores keep track
of customer’s feedback on different product lines, popular items and also try to identify patterns in terms of item,
style and color that customers look for and update the store managers with these patters. At Zara stores unlike
competitors, floor staffs do not court customers or provide formal fitting services, rather work on displaying
freshly arrived products quickly and effectively. Zara generally employs young fashion-conscious staffs in the
retail stores that pay meticulous attention to identify local trends from media or public places. Store managers
worldwide use customized handheld digital devices to quickly and accurately exchange market data such as sales
trends broken down by style, color and size and use phone conversations or visits headquarters (only key store
managers) to continuously communicate the detected patterns with a group of commercials known as store
product managers or commercial-sales specialists. These commercials have great acumen in determining what
clothes would be designed and manufactured and decide possible price points for products. Commercials could
also create, extend and modify collections. Each team of commercials is dedicated to a section of the store (Men,
Women, or Children). These commercials serve as head quarter’s main interface with network of retail stores
worldwide by working in proximate office spaces to the product teams. Product teams usually consist of two
designers, one procurement planner responsible for purchasing material and one production planner responsible
to place production orders with the factories. Primary estimation of production costs and available production
capacity are done by procurement and production planners.The cross-functional teams can scrutinize prototypes
in the hall, select a design, and commit resources for its production and introduction in a few hours, if needed.
Each commercial-sales specialist has regional expertise, as they are able to dissect tastes and customer habits
through analysis of quantitative data (i.e. twice weekly order data and daily point of sales (POS) data from stores)
and qualitative information communicated via voice call/meetings by store managers regarding customer
reactions towards new products and customer needs i.e. desires regarding styles, materials, colors, and
silhouettes requirements (Sull & Turconi, 2008). They communicate their comprehensive understanding to the
design teams at the head quarter thus helping designers keep in alignment of fast-changing trends and demands.
They also provide instant feedback to the look of the new designs created by designers in terms of style, color,
fabric.
Using the comprehensive information, designers get an idea of latent demand for possible fresh products that
could not be identified through an automated sales-tracking system. Designers combine the comprehensive
information (i.e. POS data, order data and qualitative data) along with the emerging fashion trend they perceive
from discotheques, streets, movies, surveillance of clothing designs and styles chosen by opinion leaders or on
successful television serials, competitor’s stores, couture fashion shows，trade fairs and magazines to create new
design sketch by hand and computer aided design (CAD) system (Mazaira et al., 2003; Sull & Turconi, 2008).
Using CAD system designers can make further modifications for improved matching of weaves, textures, and
colors etc. (Ferdows et al., 2003). Zara’s design team at its headquarter creates 40,000 items a year from which
12,000 are selected for production while key competitors would typically produce 2,000-4,000 (Ghemawat &
Nueno, 2006). The generation of huge variety of products is possible because Zara utilizes process
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standardization in the design phase of its productts through dev veloping stand
dardized desiggn modules allso known
as vanillaa box designss (Fraiman & Singh, 20022; Pich, Hay den, d & Harle, 2002). At thhe start of eaach selling
season, thhe designers create
c a library
y of design moodules that seerve as platforms also know wn as ‘vanilla boxes’
b for
the modeels that will be eventually y launched. T The concept design modu ules are storeed in image format in
computerrs and are not any kind of physical
p invenntory (Venkateesh & Swamin nathan, 2004)). Designers at
a Zara can
compreheensively identtify the latest fashion trendd which is a co ombined result of informattion received from Zara
stores (ee.g. order daata, store managers’ undeerstanding off fashion tren nd and POS data) and their t own
understannding of fashion trend they perceived thrrough field viisits discussed igners use the identified
d earlier. Desig
latest fasshion trend too give adaptattion or custom mization to the library-helld ‘vanilla boox’ designs, and
a create
nearly 5--8 new desiggns per day (Venkatesh
( & Swaminathaan, 2004). Iff the ‘vanilla box’designs were not
available to the designners, the desig
gn process couuld take longeer time. Desig gn by ‘vanilla box’ approacch helps to
simplify tthe intricacy of
o product varriety that is innnate in the faashion apparel industry andd help managee the short
product liife cycle. Zara is an exemp plar of processs standardizattion applied att the design-m
manufacturing g interface,
so that thhe time pointt of product differentiation
d n and producttion can be delayed (Venkkatesh & Swaaminathan,
2004).
Ferdows et al. (2004) found that the created desiigns are hand ded over to thee pattern-cuttiing and sample-making
section oor prototype shop. Skilled d workers devvelop producct prototypes manually in a couple off hours as
comparedd to 1-2weekks needed by y most fashioon companiess that outsou urce prototypee production. In-house
prototyping although costly is vitaal to maintainn the quick velocity
v of deesign decisionns. The quickk pace of
prototyping allows dessigners to experiment more flexibly with ms. Sull & Turrconi, (2008) found that
h possible item
prototypees of garmentts-to-be are placed in the ““Fashion Streeet”- a long parade
p of storres resembling
g the high
streets off Milan or Loondon along with
w rest of thhe collectionss, situated onee level down beneath the 24,000
2 m2
n products will blend intto the overall picture of
design haall. Fashion Sttreet helps design teams viisualize how new
the comppany’s currennt product offerings.
o Finnally designs are selectedd for producction and com mmercials
communiicate the seleccted items witth production plants in the form of initiaal production order. As illu
ustrated in
Figure 1,, Inditex-Zaraa seems to haave put in plaace a ‘product innovation laboratory’ thhat develops a constant
stream off fresh and cusstomer-orienteed products.
Figure 1. Deesign developpment process of total produ
uct collection
Source: Autthors.
6. Materrial Procurem
ment
Zara usess targeted voluumes of aggreegated fashionn category apparel items to o be producedd in their manu ufacturing
facilities to accuratelyy determine thheir required qquantity of faabrics to be purchased
p in aadvance (MaccCarthy &
Jayarathnne, 2009). Inacccurate estimaation of quanttity for fabric requirement will result in either a network that is
unable too supply the required volu umes becausee of capacity y limitations or
o one with ccostly unutiliized spare
capacity ((Christopher ete al., 2004; Tyler,
T Heeley, & Bhamra, 20 006). Since thee required lead
ad time for fab
bric supply
is significcantly longer than garmentt production ccycles, advancce fabric purch hase enables tthe garment production
p
system too be separated from the lo onger lead timme of fabric manufacturing g. (MacCarthhy & Jayarath hne, 2009)
noted threee alternatives in the dyeing process in th
that, apparel product
p may be assembled ffrom fabric prre-dyed by
fabric maanufacturers; assembled frrom undyed ffabric subjectt to dyeing in n retailers’ owwn dyeing faacility and
218ijbm.ccsenet.org International Journal of Business and Management Vol. 13, No. 5; 2018
finished garments may be dyed once assembled. Zara uses the second alternative for production of fashion
category apparel items that is fabrics are bought in undyed and uncut form. Zara stores 50% of its fabrics in a
‘grey’ undyed state and the fabrics are later adapted into different colors by dyeing in own manufacturing
facilities, after precise customer order specifications have been received (BusinessWire, 2002). This strategy
enhances responsiveness by enabling them to react faster to midseason color changes (Ferdows et al., 2004).
This also reduces risk since numerous styles of clothes may often be manufactured from a specific fabric type
(MacCarthy & Jayarathne, 2009; Yang & Burns, 2003). Much of this volume is channeled via Comditel with
offices located in Barcelona and Hong Kong, a 100%-owned subsidiary of Inditex (Zara’s parent company group)
that manages over 932 independent suppliers of fabric and other raw materials located in Italy, Spain, Germany,
Portugal, Greece and Far East. None of these suppliers account for more than 4% of Zara’s total fabric
requirement in order to minimize any dependency on single suppliers and encourage maximum responsiveness
from them (Ferdows et al., 2003). Fabrics are delivered directly to distribution center within 5 days of orders
being placed (SCM Globe, 2016). Comditel handles the dyeing, patterning, and finishing of gray fabric/cloth for
all of Inditex’s brands, not just Zara, and supplies finished fabric to external as well as in-house manufacturers, a
process that typically takes a week (Ghemawat & Nueno, 2006). Two of the other subsidiaries of Inditex that
source fabric for Zara are both located in Hongkong namely Inditex Asia, Ltd. and Zara Asia, Ltd. These two
subsidiaries principally purchase the synthetic and fashion fabrics from suppliers located in Asia(Chu, 2005).
Zara also collaborates with Fibracolor (a dyestuff producer part owned by Inditex and Zara purchases 20% of its
output) to facilitate rapid changes in its printing and dyeing operations.
7. Production Operations: Internal Manufacturing and Outsourcing
Zara has made considerable capital investments to gain control through ownership over the production,
distribution facilities and retail channels, all of which facilities to boost the supply chain’s responsiveness to new
fashion trends and unpredictable demands. Zara’s vertically integrated manufacturing operations enable them to
constantly introduce new items to their stores in lead times as short as 15 days rather than the average 6 months
needed for luxury brands (Ton, Corsi, & Dessain, 2010). Owning production assets increases Zara’s overall
organizational flexibility and gives significant control over schedules and capacities that would not be possible to
achieve if the company were totally reliant upon external suppliers, especially ones located in the far-east
(Ferdows et al., 2004). Functional by garment type, Zara’s manufacturing plants use sophisticated just-in-time
manufacturing operations, developed in collaboration with Toyota, that allow the organization to customize its
production operations and exploit innovations (Ferdows et al., 2004). Zara can flexibly adjust production volume
of specific garments swiftly and effortlessly because it usually runs many of its plants for only a single shift.
These highly automated manufacturing facilities can operate extra hours if needed to meet seasonal or
unanticipated demands. Zara’s ability to flexibly ramp its production up or down has a huge implication in that,
product lines that did not sell well can be quickly cancelled while the popular items could be quickly replenished.
Ferdows et al. (2003) found that due to the high level of flexibility in Zara’s manufacturing operations
“pre-season inventory commitment”- the level of production and procurement in the supply chain for Zara is
15%-20% of anticipated sales versus industry average 45% -60%. The “in-season commitments” at Zara are 40%
- 50% whereas the industry average ranges from almost zero to an utmost closely monitor their operations to
ensure quality, compliance with labor laws, and above all else adherence to the production schedule. The
relationship between Zara and its of 20%. This helps to avoid inventory backlogs, clearance sales or inventory
stock out that are a regular drain on the profit in the industry.
Internal manufacturing is performed by 11 fully owned plants, most of them positioned in and around Zara’s
headquarters in Arteixo, Northern Spain (Amed & Abnett, 2015) and (Inditex Annual Report, 2017). These
manufacturing facilities are heavily automated and perform only the capital-intensive initial production
processes such as fabric dyeing; pattern design using (CAD); CAD marker making ( i.e. creating layout of
pattern pieces); pattern manufacturing and fabric cutting into those patterns using automated knives or lasers
aided by computer aided manufacturing (CAM). These machines can calculate how to position layout of pattern
pieces on the marker efficiently and quickly on computer screens to map out the individual parts for a garment
on the fabric. The machine thus minimizes fabric waste while cutting over 100 layers of cloth at single cut
(Ghemawat & Nueno, 2006; McAfee et al., 2007). The cut fabric pieces are then sent to a network of more than
400-450 partner factories located nearby the Inditex-owned factories in Galicia and Portugalto perform the labor
intensive assembly/sewing operations. Zara employs about 3,000 workers in these factories performing assembly
processes in Spain at an average wage rate of 8.00 euros/hour compared to average labor wage rates in Asia of
about 0.40 Euros/hour (Amed & Abnett, 2015). These partner factories/subcontractors often collect the cut
pieces, along with the associated materials such as buttons and zippers in small vehicles. Zara meticulously
219ijbm.ccsenet.org International Journal of Business and Management Vol. 13, No. 5; 2018
monitor their operations to safeguard quality, conformity with labor laws, and above all else adherence to the
production schedule. The relationship between Zara and its subcontractors are generally long-term and as such
Zara collaborates with its subcontracting partners by providing technology, logistics and financial support. The
partner factories then bring back the assembled items to Zara’s factories, where each piece is inspected for
quality control during ironing (by machine and by hand), given a machine-readable tag and packaged. The
finished products are then dispatched on hangers grouped by model and size, through part of the 211 km network
of rails to Zara’s Arteixo distribution center. Completed products procured from external suppliers are also sent
directly to the distribution center. Zara implements a sampling methodology to ensure quality for the incoming
products (Ghemawat & Nueno, 2006).
Zara also outsources the fashion category products to original design manufacturers (ODM suppliers) in
geographically proximate countries such as Turkey, Morocco Portugal and Bulgaria that helps to compress
order-to-delivery lead times (Gereffi & Memedovic, 2003; Tokatli, 2008). “Transport time”, a location factor
other than the "transport cost” factor generally considered in economic geography models, allows for
comparative advantages to be reassigned in favor of these geographically proximate countries (Orcao & Pérez,
2014). Although production in these proximate sources is expensive compared to distant countries with cheaper
labor wage rates, it significantly enhances flexibility. Zara can quickly cancel unpopular product lines, and avoid
inventory backlogs and product markdowns that are a regular drain on profit (Tokatli, 2008). These countries
have increased their competence through industrial upgradation to become ODM suppliers (Scott, 2006). The
suppliers are therefore able to develop and supply designs of their own in consultation with their buyer; prepare
samples and prototypes; procure fabrics and able to translate concepts into varieties of finished products; able to
manufacture sophisticated high quality fashion garments and tailored suits with the required flexibility and speed;
in a variety of styles in shorter runs (Tewari, 2006; Tokatli, 2008). Production in these European proximate
countries is typically 15%–20% more expensive for Zara compared to distant Asian countries due to higher labor
costs. However the attained capabilities of rapid responsiveness to demand changes in terms of volume/ variety
and frequent product replenishment option for the fast fashion retailer help attain fast inventory turnaround and
minimize market mediation costs which in turn counterbalances higher manufacturing labor costs (Abernathy,
Dunlop, Hammond, & Weil, 1999). Zara procures the more price-sensitive but less time-sensitive basic category
apparel products by outsourcing total production processes to OEM production/full package sourcing networks
located in distant sources such as China, Bangladesh, India, Pakistan, Vietnam and Cambodia where labor wage
rates are lower and order-to-delivery lead times are significantly longer compared to local/proximate sourcing
(Ferdows et al., 2004; Inditex Annual Report, 2005).
7.1 Inditex’s Supplier Portfolio
Inditex works with a total of 1805 supplier situated in 53 countries. 59% of the 6959 factories Inditex works with,
in total are in proximity to their headquarters in Arteixo (A Coruña, Spain), mainly in Spain, Portugal, Turkey
and Morocco which also form among major production centers (Inditex Annual Report, 2016). The fashion
category apparel products are sourced from these proximate factories. The rest 41 % factories are located in
Asian regions (e.g. China, Bangladesh, India, Pakistan, Cambodia, Vietnam) and South-American region (e.g.
Brazil and Argentina) from where basic category apparel is sourced (Ferdows et. al, 2004 and Driscoll & Wang.,
2009). 50% of all items are manufactured in its own network of Spanish factories, 26% from Europe (e.g.
Portugal, Bulgaria, Lithuania, Romania) and 24% in Asia (e.g. China, India, Pakistan, Bangladesh, Cambodia,
Vietnam) and Africa (e.g. Turkey and Morocco) (Amed & Abnett, 2015). Inditex currently has 12 local dialogue
platforms or geographic ‘clusters’ located in their sourcing regions i.e. Spain, Portugal, Morocco, Turkey, India,
Pakistan, Bangladesh, Vietnam, Cambodia, China, Brazil and Argentina. These clusters encompass over 95% of
Inditex’s production chain (Inditex Annual Report,2017). Each cluster is a group of stakeholders based in the
same geographical region comprising of suppliers, manufacturers, trade unions, international purchasers and
local Inditex CSR teams. Cluster strategy spurs collaboration between the different agents involved, significantly
enhance the productivity of local manufacturers, and enable Inditex to share technology with them as a source of
competitive advantage (Inditex Annual Report, 2017). Additionally, these clusters offer opportunities for
cooperation with suppliers and are devised to advocate a more sustainable supply chain and production
environment within a core geographic region. As such Inditex is successfully able to deploy strict social
compliance and labor standards which ought to be followed by its suppliers locally and thus makes sure its
suppliers' business activities have a positive impact on their communities. Inditex also joins forces with
governments, non-governmental organizations (NGOs) and worker/civilian associations in order to foster
engagement with its suppliers and manufacturers.
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8. Logistics and Distribution Operations
Inditex has a total of 10 logistics centers located close to the head offices of each of its eight brands in
Spain (Inditex Annual Report, 2017). The distribution center in which apparel merchandise for Zara is
processed is located in Arteixo, A Coruña, Spain (SCM Globe, 2016). The distribution center (DC) of
Inditex-Zara called “The Cube” is huge at 464,500 square meters (5 million square feet) and highly automated
located in Arteixo, Northwestern Spain, along with company headquarter and 11 manufacturing facilities (Caro
& Martínez-de-Albéniz, 2015). These 11 Zara owned factories are located within a 16 km (10 mile) radius and in
addition is also connected to the distribution center with underground monorail links. These underground tunnels
with high speed monorails (about 200- 211 km of rails) are used to transport cut fabric to these plants for dyeing
and assembly into clothing items. The manufacturing plants also use the monorail system to return finished
products (approximately 50,000 garments/week from each factory) to the distribution center for shipment to
stores (Butler, 2013).
Inditex-Zara’s competitor’s regular practice is that products produced from different production points are
shipped first to distribution centers to regional warehouses to individual country markets. It usually takes 2-4
weeks for Zara’s competitors to transport their products from one of their distribution centers to each country
market via a regional warehouse. Their underlying reason is to save transportation costs by using low cost thus
slow modes of transportation and keeping a large inventory at each logistical point since they source in large
quantities from each production point in order to enjoy scale economies. In addition they save their
transportation costs by not overlapping or duplicating their transportation routes since they ship their products
made in the local markets directly to the local distribution centers instead of shipping back to a few centralized
distribution centers like Zara. On the contrary, every Inditex product regardless of its origin or destination is
delivered to the allocated distribution centers of each brand in Spain, where it is picked, sorted, packed and
freight loaded to be sent on to the company’s global store network of those brands (Orcao & Pérez, 2014).The
clothes stay in the DC from a couple of hours to a maximum of three days since the distribution center is a point
to move the merchandise rather than to store it. The objective is to manufacture and deliver only what and when
the stores needed those specific items. At the distribution center, shipping of garments of exact sizes and styles
as par ordered by retail stores is organized within 8 hours of a store placing an order (Chu, 2005). Inditex usually
reserves 100% excess capacity in its distribution centers so as to be able to react to demand surges during the
beginning of the two selling seasons in January and July or even to unexpected demand surges by boosting
utilization rates of its unutilized capacity.
Mcafee, Dessain and Sjoman (2007) noted that inside the distribution center, the most sophisticated and latest
automated systems track where each SKU is stored as it enters the DC and controls the conveyor belts to pick
them up and drop them off at the correct places thus allotting individual garments piece by piece depending on
the needs of individual stores. The applications that control the DC’s automation are developed by Inditex’s IT
department often in collaboration with the vendors of conveyor equipment. The garment pieces move along the
carousel until they reach and fill in their allocated boxes and racks (for hanging items). These barcode marked
boxes containing finished garments and each designated for individual stores are grouped and stored on the
network and is called by the system when needed (Butler, 2013). These boxes leave the distribution center and
are transported to a Zara’s state-of-the-art logistics center (120,000-square-meter) located in Zaragoza, Northeast
of Madrid, and Central Spain. This logistic center is situated proximately to the local airport and has direct
connection to the railway and road network. And from there they are delivered by trucks to retail stores in
Europe and by air freight to deliver clothes to distant markets twice a week (SCM Blog, 2016). Chu, (2005)
noted that 20%-25% of Zara’s products are air shipped and the rest is transported by sea freight and truck. About
65% of Zara’s garments shipped are folded and 35% are shipped hung. Hung garments are expensive to ship
compared to the folded garments since they take up more volume, but this is done so that the merchandise can be
delivered to the stores floor-ready. The transportation and distribution of Inditex’s products to stores is
undertaken entirely by external contractors (Inditex Annual Report, 2017). The deliveries reach destined stores
around the world in delivery times as follows: Europe – 24 hrs. United States-48 hrs.; China-48 hrs.; Japan-72
hrs (Ferdows, 2004). Ferdows (2004) stated that since all the items that are shipped to stores have already been
pre-priced and tagged, store managers can put them on display the moment they come off delivery trucks,
without having to iron them. The requirement for monitoring at this stage is reduced because the shipments are
98.9% accurate with less than 0.5% shrinkage. It is obvious that for Zara, speed is a paramount concern and
distance is not measured in kilometers, but in time. Stores place orders and receive deliveries twice a week.
Guided by inventory optimization models, each retail store gets a tailored assortment of products exactly as par
ordered twice a week often within 2-4 days after order placement, depending on store location.
221ijbm.ccsenet.org International Journal of Business and Management Vol. 13, No. 5; 2018
9. Retailing Operations
To rapidly match changing customer’s needs, Zara practices a total control of the retail-chain through forward
integration and retaining ownership of 90% of its stores (Sull & Turconi, 2008). Zara uses franchise only in risky
countries or in countries where wholly owned stores are not allowed to operate (Tokatli, 2008). However Zara’s
franchise agreements are usually designed as a 5-year contract with fees of 5-10% of total sales and Zara always
reserves the right to either buy out the franchisee or open wholly owned stores during that contract period. This
arrangement allows Zara to experiment markets in new countries without bearing significant financial risk (Caro
& Martínez-de-Albéniz, 2015). During the first half of year 2017, Zara’s global reach in total of 94 markets
encompassed 2,236 physical stores (Inditex Annual Report, 2017). McAfee et al. (2007) stated that this allows
Zara to expand its direct connection to the critical last step in the supply chain which is its customers. It is
possible to install unified (POS) systems in the stores that can track real-time global sales information which
gives an accurate picture of true customer demand; evolving and fast-changing customer preferences and
constantly changing fashion trends in real time. Multiple POS terminals installed in a typical store transfer their
respective comprehensive sales information for all SKUs performed in a typical business day to a mother POS
terminal in the store. This mother POS terminal transfers the aggregated data to head quarter connected via
modem. Thus Inditex is able to track real-time information on status of inventory at the precise SKU level from
stores and can quickly transfer to the upstream operations of design, procurement, production, and distribution
on a constant basis. This helps to mitigate the so-called ‘bullwhip effect’-the tendency for fluctuations in market
demand information to get exaggerated as they are transmitted back up the supply chain. A modest change in
retail orders, for instance, can result in wide variation in orders as it reaches the factory while being transmitted
through wholesalers and distributors (Whang & Lee, 1998). Additionally it gives Zara more sway over retail
inventories in terms of product mix, pricing and quantity offered and other factors. The level of control achieved
allows Zara to set the pace at which products and information flow (Edmondson, 2003). Ton, Corsi and Dessain,
(2010) stated that, stores are at the core of Zara’s business model and it is where Zara constantly takes the pulse
of its customer demand. Zara places the stores in prime locations that attract voluminous flow of upscale
shoppers in the most high-profile commercial areas, often including landmark buildings in the premier shopping
streets and upscale shopping centers around the world. The average size of the stores is 1200-1,376 square
meters and carries about 40,000 units of inventory. Shop floors are designed to be spacious and therefore the
product density of a typical Zara store is 28 units of inventory per square meter while traditional retailers usually
have between 32 and 43 units of inventory per square meter. Ton, Corsi and Dessain,(2010) found that most of
the selling space in a typical Zara store is left empty in order to create a pleasant, spacious and uncluttered
shopping environment and let customers explore the products for themselves. Additionally offering fashion
forward apparel in fewer quantities creates a feeling of desperation among customers. Thus when shoppers find
something they like they impulsively make a purchase because the item would likely be sold out a week later.
Only 70 percent of inventory is put on display at sales floor while rest 30 percent of inventory is kept in
backroom. Sull and Turconi (2008) stated that designs for store displays (i.e. looks for windows and interiors in
terms of themes, color schemes, and product presentation) are centrally- designed and prototyped by teams of
merchandisersat an indoor street containing model store windows located within the Arteixo headquarter. The
reason for significant centralization of store layout and interior presentations of store window displays is to
promote its same market image worldwide. These ideas are carried to the stores by regional teams of window
dressers and interior coordinators. The shop windows are updated every 3-4 weeks. Butler, (2013) stated that
Inditex spends more heavily and more frequently than key competitors in renovating and updating the layout and
decor of its store base for each of its brands with new designs every 18 months. 300-400 stores are renovated per
year at a cost of €1.4bn/year and thus add to one of the main areas of capital expenditure for Inditex. Attractive
interior and exterior of stores provides customers with a sense of luxury and a special store experience. All of
this is important for Zara as brand recognition is dependent upon store visibility. Additionally, these retail stores
and word-of-mouth of customers do the advertising to draw in new shoppers. Crofton & Dopico, (2007) stated
that Zara spends relatively little on advertising (0.3% of sales turnover compared with 3.5%-5.4% by its
competitors in 2001) and even does not exhibit its new merchandise at the ready-to-wear fashion shows rather
are first displayed in its stores. Rather Zara spends its money on opening new stores instead of spending huge
sum of money on advertising campaigns. The little ads that are undertaken are to only publicize its twice yearly
sales and to announce the opening of a new store.
Inditex has taken a number of important initiatives to streamline customer’s purchase process, reducing their
waiting times and offer new options for buying, exchanging or returning products all of which are aimed at
offering a satisfying shopping experience to consumers. Firstly, Inditex finished implementing Radio frequency
identification (RFID) technology at all its Zara stores in 2016, and aims to install it in all the stores of its other
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